EMPLOYERS BEWARE: HANDLE CONSUMER REPORTS CAREFULLY TO AVOID FAIR CREDIT REPORTING ACT VIOLATIONS

The Fair Credit Reporting Act has been around for a while, but still trips up many in the HR profession.  In fact, we could probably post a piece on the FCRA every 6 months and it wouldn’t be reminder enough.  How does this Act cause so many problems for employers?  Please read on.

Let’s start with the basics.  Generally, the FCRA requires that an employer provide notice to current or potential employees before obtaining “consumer reports” which the employer will or may rely on for the purpose of making a hiring or employment decision.  This obviously includes records related to “credit,” but it’s broader, and includes seeking reports related to things like “general reputation” and “personal characteristics.”  This is where many employers get into trouble, because they don’t think the Act applies to what they’re doing, whether at the pre-hire stage or otherwise.

Before an employer may obtain a consumer report on an employee or applicant for employment, the employer first must make a clear written disclosure in a separate document that a consumer report may be obtained for employment purposes and must obtain in writing the individual’s authorization for the employer’s procurement of that report.  Furthermore, before an employer may take any adverse action against an applicant or employee based on a consumer report, the employer must provide the individual with a separate notice, providing the applicant or employee a copy of the report and a description of his or her rights under the Act.

Of course, these requirements seem straightforward enough, but upon closer examination, questions quickly arise.  For instance, does the employer meet the requirements of the Act if the required disclosure is contained on a separate page of a multi-page employment application packet?  May the individual’s authorization for obtaining the consumer report contain a release of the employer and the entity providing the consumer report of all claims regarding the information obtained?  How much time must elapse between the date on which the employer informs the individual that it may take adverse action based on the contents of the consumer report and the date that it takes such action?

Over time, the courts and other authorities have provided some guidance on these kinds of issues.  In a 1997 advice letter, the Federal Trade Commission stated that once the employer provides the employee or applicant a copy of the report which the employer obtained, 5 days is a reasonable period of time under the Act before taking an adverse action based on it.  More recently, one court in Maryland held that the inclusion of a liability release clause in a disclosure and/or authorization form violates the Act, as the disclosure and/or authorization information would not be contained in a stand alone form as required by the Act.  Singleton v. Domino’s Pizza, LLC, CA No. DKC 11-1823 (D. Md. 2012).  In a different case, a court in Ohio held that including one area in the disclosure document which the employer is not going to look into with a number of other potential records which will be relevant does not render the disclosure document defective.  Burgby v. Dayton Racquet Club, 695 F. Supp. 2d 689 (S.D. Ohio 2010) (listing driving records on the disclosure for a non-driving position).

So what happens if an employer doesn’t do what the FCRA requires?  Remedies for negligent non-compliance with the Act include payment of the attorney’s fees incurred by the individual and the actual damages the individual sustained.  Worse, non-compliance that is determined to be willful can result in statutory damages of not less than $100 and not more than $1,000, as well as punitive damages and the individual’s attorney’s fees.  Knowing or reckless disregard of the mandates of the Act or repeated violations will make a violation willful and expose the employer to these enhanced damages.

While these damages may seem nominal on an individual basis, the problem is that an employer’s practice of dealing with these issues generally happens on a larger basis.  The damages can stack up quickly in that situation.  And that’s also why litigation asserting violations of the FCRA frequently occurs as a class action, which no employer wants to deal with.

In light of the risks in this area, and considering the strictness with which courts have more recently interpreted the Act’s disclosure and authorization requirements, employers are well advised to review all such practices relating to their use of consumer reports in making employment and hiring decisions with competent counsel.

Allison Williams focuses her practice in the area of labor and employment law, litigation, and higher education law. Ms. Williams' practice includes cases pending in state and federal courts, as well as actions pending before the West Virginia Public Employees Grievance Board, the West Virginia Human Rights Commission, and the Equal Employment Opportunity Commission.
 
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